Management Accounting

Relevant Price - Pricing

Decisions
Gavin Pradipta 1606888166
Mardina Natalia 1606835531
Madeleine Aritonang 1606911370
Tania Try Rahmah 1606833803
Klara Amanda A 1606894401
Antony Goenawan 1606911396
Relevance of Pricing to
Management Control
 The amount that a client pays for a
service indicates that the service is
worth at least that much to the
client. Indeed, the better a pricing
Client Behaviour scheme fits with client
decision-making options, the more
powerful its impact on client
behavior
FOR EXAMPLE

Residents of a city can be charge for use of water in one of at

least three different ways:
1. Charged on same amount
2. Charged monthly, based on the number of bathrooms and
kitchens
3. Charged as measured by a meter of used
IMPLICATIONS

However, such a system does not motivate consumers to

conserve water except for the third option.

If meters are installed, consumers are more likely to give

thought to conserving water. This occurred in New York City
some time ago when, after meters were installed, water
consumption fell by nearly 50 percent.
 Measurements of output from
Measure of monetary terms is more likely
useful for the managers than the
Output non-monetary.
FOR EXAMPLE

If revenue one year is lower than that of previous year,

managers have a good indication that the organization’s real
output has decreased.
 Profit center managers are
motivated to think of ways to :

Behaviour of 1. render additional services to

Managers 2.
increase revenue
reduce costs
3. change prices
FOR EXAMPLE

In an organization with a computer center, if computer

services are furnished without charge, assignment of a
computer time is the responsibility of the manager of the
center, and time assignments are made according to his or
her perception of users’ needs. If the computer center is set
up as a profit center, however, and dissatisfied users are free
to go elsewhere, the manager is motivated to offer quality
services at competitive prices.
IMPLICATIONS

If customers do not buy a product in the quantity that

managers think is reasonable, there is an indication that
something is wrong.

Whatever the reason, management will want to reexamine

the product and its price.
Normal Pricing
Full Cost Satisfactory Margin Danger
To finance its fixed asset growth, Normal price may conceal cost
replacement, and working capital, inefficiencies:
1. Depreciation expense nonprofits should generate equity. - no danger signal
(+) provides similar pricing with
for-profit company Estimating the margin: Solution: implement other tools to
(-) PPE with contributions - Rule of thumb analyze operation effectiveness
acquired by zero cost - Conservative estimate
2. Revenue offsets:
- for specific service: taking into
an account
- for general services: reduce the
required margin in all services
The Pricing Unit
Pricing Unit in General

The smaller and more specific the unit of service that is

priced, the better. Improves senior management’s
decisions about the resource allocation and measures
output for control purposes better.
 The practice of isolating
Unbundling progressively smaller units of
service for pricing purposes
Qualifications to unbundle services

1. Beyond a certain point, the paperwork and other costs

associated with pricing tiny units for services, obviously
exceed the benefits
2. The consequences of such pricing should be consistent
with the organization’s overall policy and goals.
FOR EXAMPLE

A hospital could charge a bundled price at a price level.

However, not every patients needs everything on the bundle
that the hospital offered. So, the hospital could just charge the
patient separately for each items they need. If the patients
can tolerate some things such as blankets or special
treatments, they will get charged less.
Variations from Normal
Prices
Price Influenced
by Outside Some prices are set by outside
agencies.
Forces
FOR EXAMPLE
The diagnosis related group (DRG) prices that are used by
Medicare to reimburse hospitals, and the price ceilings
sometimes specified by goverment agencies as a condition for
providing services funded by govenment grants. In this
instances, managers still need to make cost calculation even
though their selling price is given. If hospital’s full cost of
treating a patient with a particular diagnosis is greater than
the associated DRG price, the hospital will need to determine
whether it wishes to avoid accepting patients with that
diagnosis.
IMPlICATIONS

The decision is subject to the hospital’s legal and ethical

obligations.

DRG price affect the way physicians behave. Consciously or

unconsciously, they may treat the patient in a way that
generates the most income, rather than in the most clinically
appropriate way.
FOR EXAMPLE

A General Accounting Office study of 264 oncologists found

that 64% of them admitted chemotherapy in hospitals rather
than in their private offices, although the treatment in many
cases could have been conducted equally well in a private
office.
IMPLICATIONS

No oncologist could charge much more or much less than its

competitors.

Payment for office treatment were low, compared to payment

(and cost) in a hospital.
 Cost Revenue for many services consists
Reimbursement of reimbursement for costs actually
incurred, rather than a preset selling
price.
FOR EXAMPLE

According to OMB Circular A-21, travel and subsistence costs

of college and university trustees are unallowable.

The reasonable cost of meals served in connection with a

trustee meeting is allowable, except that the cost of alcohol
beverages served at such meals in unallowable.
IMPLICATIONS

Unallowable costs are costs that, although incurred by the

organization, are not allowed in the reimbursable cost pool.

Contracting agancies may also specifies ceiling for certain

items.
Market Based
Price
FOR EXAMPLE
Many universities believe that room and board charges should
be based on full cost because student live in dormatories and
eat in dining rooms as a necessary part of the educational
process. By contrast, they believe that the rental of space
outside group, the provision of special programs requested by
outside groups, or the sale of items at campus soda fountains
is not closely related to the main objective of the campus.
IMPLICATIONS
Managers ordinarily apply a normal pricing policy to service
that are directly related to their organization's principal
objectives. In dealing with peripheral activities, however, they
usually make sure their prices correspond to market similiar
price.

The prices of the rental of space outside group, the provision

of special programs requested by outside groups, or the sale
of items at campus soda fountains are set at market levels. .
Pricing Subsidized Services
 An organization may decide that its
price will be the same for all

Subsidies for
services even though some services
cost more than others. In this case,

Certain Services higher-cost services are said to be

cross-subsidized by lower-cost
services.
FOR EXAMPLE

Courses in Latin and Greek, and seminars in a college

typically have small enrollments, with a resulting faculty cost
per student that is two or three times the cost for more
popular courses. Because the college does not want to
discourage enrollment in these courses, it charges the same
tuition to all students. Thus, its low-enrollment courses are
subsidized by high-enrollment courses.
 A client who is not charged the
Subsidies for same amount as other clients who
receive the same or comparable
Some Clients services is being subsidized
FOR EXAMPLE

Colleges and universities provide subsidies to certain

students in the form of scholarships and other financial aid.
any people believe that the amount of financial aid should be
reported as an expense item, so tuition revenue will measure
the gross amount that the college has earned in its
educational programs. Tuition revenue thus would provide a
sound measure of actual output.
 Some organization receive
contributions or appropriations
intended to subsidize their services
for all clients. when this happens, no
clients pays the normal price
Subsidies for All services. The question then arises :
Should the gross revenue resulting
Clients from the normal price of these
services be reported with an offset
from the contributed amount, or
should only the actual amount of
service revenue charged be
reported?
Free Services
Free Services
- Public Goods
Services that are free for clients
- Quasi Public Goods
WHEN - Charges for Peripheral Services
- Other Free Services
- discriminatory
- impossible or infeasible.
 Public Goods Quasi Public Goods
- Services provided for the benefit of
Goods or services whose benefits are
the public.
enjoyed by public, but if it consumed by
- Cannot be provided through market certain individuals will reduce the
mechanism consumption of others for these goods
- Eg: Police protection, foreign policy, Eg: Roads, Subsidi BBM
national security.
 Charges for
Peripheral Services
- Eg: public school systems charge
for after-school athletics
Other Free Services
- Services are provided as a public
policy, but clients cannot afford to
pay for them
- It is public policy not to ration the
services on the basis of ability to
pay
- A acharge is politically untenable
- Client motivation is unimportant
- contoh general dan specific
services
- danger signal bisa pake ratio ga
- kelebihan kekurangan setiap
subsidies
- skema subsidi BPJS
- free charge quasi public goods
→ contoh penerapannya gimana
ya di nonprofit
- Non profit kok tetap ada
harganya? padahal kan ga profit
- PLN 450V kebawah dapat
subsidi tarif, kenapa ga
penggunannya aja. Apa sih
kelebihan tarif tersebut?
Thank you!
any questions?